Economics

The U. S. Federal Trade Commission (FTC) has sued Intel Corp. for malpractices to stifle competition and strengthen its monopoly by adopting anti-competitive tactics preventing superior competitive microchips from reaching the market, thereby, depriving the consumers of choice and access to potentially superior non-Intel chips and lower price benefits (Lohr, 2009). The FTC is seeking a comprehensive order that will stop Intel from using threats, bundled prices or other offers to encourage exclusive deals or hamper competition or unfairly manipulate the prices of its products. The FTC may also seek an order prohibiting Intel from unreasonably inhibiting the sale of competitive CPU chips or other products or even precluding it from producing or distributing products that impair the performance of corresponding non-Intel products (Lohr, 2009).

Analysis
     Intel has a monopoly in the microprocessor chip market. For over a decade it enjoyed market shares of 80-90 percent by revenue and 75 percent by unit (Scribd, 2009). Its invention of the x86 microprocessor chip constitutes its primary source of market power. Further, Intel controls x86 microprocessors and PC system standards, giving it the power to dictate what type of products can enter the market in competition (Scribd, 2009). Having unique sources of market power is characteristic of monopoly markets (Last name, Year). Secondly, Intels profit margins compared to the narrow margins of its primary customers, top-tier OEMS re-affirm its monopoly status. According to Dell founder and CEO Michael Dell, Intel biggest customer, even Microsoft cannot match Intels profit margins and pricing power. In the period from 2001-2003 Intels sales went up 22.5 percent while their profits increased at the rate of 350 percent (Scribd, 2009). Intels clients also depend on it for product allocation, marketing support and technical information for research and development.

     In the microprocessor chip market monopolized by Intel, there are multifarious barriers to entry protecting its monopoly status, as is the case with monopoly markets by their very definition (Last name, Year). Firstly, designers and manufacturers of microprocessors require access to intellectual property which only Intel has resulting in substantial licensing issues for potential entrants (Scribd, 2009). Secondly, the cost of designing and constructing manufacturing facilities for microprocessors ranges in billions of dollars, in addition to huge amounts of time required for gaining regulatory approval for the facilities and constructing them, reducing entry into the market (Scribd, 2009). Thirdly, the microprocessor industry is characterized by economies of scale making it extremely difficult for small manufacturers to achieve operative profits (Scribd, 2009).

      The charges levied against Intel are characteristic of a monopolistic firm imposing limitations on competitors (Last name, Year). Intel has done the same through implicit agreements and cartels (Last name, Year) such as paying for exclusivity rights to Japan manufacturers and entering into exclusivity deals with Dell and German retailers to cut out competition (Scribd, 2009). It has allegedly been engaging in various other anti-competitive practices to end the competition it faces or would face in the market from superior products. These practices have deprived consumers of cost and innovation benefits and have been deemed unfair and unlawful on multiple occasions (Lohr, 2009). This article brings to light the true nature of monopoly existence and operation.